1.The organization must qualify: Charitable contributions must be made to “qualified organizations” as provided by IRS Publication 526. Remember, you can’t deduct donations to specific individuals or political organizations.
2. You must itemize: Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.
3. What you can deduct: You can deduct cash contributions and the fair market value of most property you donate. Clothing and household items must be in “good used condition or better” to be deductible.
4. Receive something in return?: If your contribution entitles you to receive merchandise, goods, or services, you can deduct the amount exceeding the fair market value of the benefit received.
5. Pledges and payments: Only contributions actually made during the tax year are deductible. For example, if you pledged $500 in May but paid the charity only $200 by year end, you can only deduct $200.
6. Recordkeeping: You must keep records of the contribution. Save a cancelled check, bank or credit card statement, or a dated/ written receipt from the charity with the amount of the contribution. For text message donations, keep your phone bill showing the receiving organization, the date, and the amount.
7. Donations made near year end: Include credit card charges and payments by check in the year you donate to the charity, even if you don’t pay the credit card bill or draft from your bank account until the next year.
8. Large donations: For contributions of $250 or more, you need more than a bank record. You need a dated/written receipt from the charity. Stating the dollar amount donated and whether the organization provided goods or services in exchange for the gift. If you donated large items, the receipt must include a description of the items and a good faith estimate of value. For items valued at $500 or more, you must complete a Form 8283, Noncash Charitable Contributions, and attach the form to your return. To claim deductions for contributions of noncash property worth more than $5,000. You must obtain an appraisal and complete Section B of Form 8283 with your return.
Do you have the support you need to manage your small business bookkeeping?
Schedule a 30-minute appointment to speak with a local small business adviser.